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The Fed’s “Third Mandate”

Lately, the Cartel has been throwing everything – including the kitchen sink – at Precious Metals; in silver’s case, vigorously defending its latest “line in the sand,” at the 200 DMA of $17.96/oz; and in gold’s, at its 200 day and 200 MONTH moving averages, both of which are roughly $1,266/oz. And despite, as I mocked yesterday, the dollar index “rising” this week – due to heightened fear of a Eurozone breakup – they’ve been having an immense amount of trouble holding them down.

Yesterday, we saw the newest Cartel machination in action – of capping Precious Metal gains; no surprise, via the “Cartel Herald” algorithm, at the 12:00 PM EST “cap of last resort”; when Treasury bond auctions go, LOL, “well” – which I mock due to the fact that auction data is so comically easy to rig, to garner the desired “market” reaction. Conversely, if such auctions go “badly” – i.e., a lower sale price than the prevailing market price – Precious Metal prices are smashed. And of course, either way, PPT-supported stock prices are unaffected, subject only to the ubiquitous “dead ringer” algorithm, which “coincidentally” is centered around the Fed’s 10:00 AM EST “open market operations.”

The net result of the bond auction shenanigans is that the benchmark 10-year Treasury yield simply cannot breach the 2.5% “economic line in the sand” I drew six weeks ago – just as it couldn’t breach the 3.0% level three years ago; because the economy is so weak, and hopelessly over-indebted, it cannot handle any rise in interest rates. To that end, I look forward for this afternoon’s release of the (as always, blatantly doctored) “minutes” of last month’s FOMC meeting – in which the Fed couldn’t have been more dovish, amidst the so-called “euphoria” of the soon-to-collapse, comically stupid “Trump-flation” meme.

The 12:00 cap of last resort algo – or a “variation thereof” – has become so ubiquitous, it has capped essentially every gold rally this year; including Monday, despite all other markets being closed for a national holiday! And yet, gold is still up roughly $85/oz this year, and silver nearly $2.00/oz; this, despite said “Dow Jones Propaganda Average” having been on an historic (non-fundamentally supported, PPT-goosed) run.

The problem – for the Cartel, that is – is that crashing currencies (like the Euro, which this morning is within basis points of a fresh 14-year low) are making it extremely difficult to overcome surging demand for history’s most time-honored store of value. Not to mention, its “twin destroyer of the fiat regime” – Bitcoin – which this week surged to within a few percentage points of the all-time high achieved in the year’s opening days. This, as the scarcity caused by record high physical gold and silver demand; record low above ground, available-for-sale inventories; and falling production is causing. As opposed to LOL, crude oil – which the soon-to-collapse “oil PPT” is desperately trying to support, despite the worst glut in the nearly century-long history of the energy markets – as discussed here.

And I assure you, such trends are, for all intents and purposes, guaranteed to gain momentum, particularly as 2017’s (potentially year-long) “witching season” is about to commence – with near-term catalysts like the Dutch Prime Ministerial election and U.S. debt ceiling suspension termination on March 15th, and the French Presidential election a month later. The former of which, is essentially guaranteed to put the violently anti-EU, and anti-immigration Geert Wilders into office; and the latter, the equally anti-EU, anti-Euro Marine Le Pen into office – who has made it crystal clear, that the first thing she wants to do if (or should I say, when elected), is hold a “FrExit” referendum.

And how about that? Just as the MSM claimed the BrExit “couldn’t happen”; and Trump “couldn’t win”; Le Pen’s polling strength is rising each day. Put it this way, the current second place candidate, Francois Fillon, is embroiled in a hideous nepotism/embezzlement scandal (LOL, as I spell-checked this section, the computer suggested “Fillon” should be replaced with “Felon”). Meanwhile, the third place candidate, Emmanuel Macron, is seeing his polling numbers plummet; whilst the fourth and fifth place candidates, Benoit Hamon and Jean-Luc Melenchon, are discussing an LOL, “merger” of their candidacies. Which even if they did, still wouldn’t garner them enough votes to surpass Le Pen. In other words, it’s becoming more and more apparent that Le Pen will win, sending Europe into chaos, and the Euro to a date with destiny at a valuation potentially well-below parity with the dollar – capping an historic currency collapse that has caused European inflation to explode; even if, the hyper-inflating ECB claims it doesn’t exist.

Amidst the lunacy of the most egregious, economically-distorting financial market goosing of all time, the underlying rot is rapidly eating away its historically flimsy foundation – starting with the horribly deleterious effect on corporate earnings of the rising dollar, to the point that Donald Trump himself espoused it’s “too strong”; in the process, presaging America’s inevitable re-entry into the thermonuclear currency wars.

Meanwhile, hedge fund liquidity has plunged to an all-time low, as hundreds go out of business because their “genius” managers are too dumb to realize that only the major indices are rising (due to PPT buying), whilst the average stock remains well behind the behemoth “FANGS” dominating the market capitalization-weighted averages. Moreover, the inexorable rise of money market rates is loudly signaling tightening credit conditions, as are the relentless collapse of interest-rate sensitive businesses; this, despite an historically paltry rise in rates.

As for PPT-goosed equities, what part of all-time high valuations – amidst all-time low fundamentals, is it so difficult to see? Let alone, the terrifyingly ominous fact that, as discussed here, the NASDAQ is now more technically “overbought” than at the tippy top of the early 2000 dotcom bubble! To that end, the Pied Piper of financial “news” – CNBC; amidst record low viewership ratings; yesterday asked the ultimate “famous last words” question. I.e., “should we just buy everything?”

Which brings me to today’s topic, fresh from the mouth of the Fed’s newest “loose cannon” President, Neel Kashkari of the Minneapolis Fed. You know, the guy that just last week, in a Wall Street Journal editorial, said America’s “too big to fail” banks are hopelessly undercapitalized.

As it turns out, he inadvertently let the cat out of the bag yesterday regarding the “hiding in plain sight” secret I have been screaming from the rooftops of for years – of what the Fed really cares about, as opposed to its propagandized “dual mandate” of maximizing employment and stabilizing prices; both of which, it has dramatically, and epically, failed to achieve.

Which is, that “we really have a third mandate, of financial (market) stability.” In other words, doing ‘whatever it takes’ to support asset prices; like, you know, covertly monetizing stocks; and Treasury bonds, amidst an environment of unprecedented selling by foreign Central banks. And have no fear that they’ll get gun shy; as in true Greenspan-ian fashion, he uttered the equally Custer-like famous last words that “we are keeping our eyes open for signs of bubbles, but it is very hard to see them in advance.” Unless, of course, you have a handful of brain cells, and any degree of objectivity.

Unfortunately – for him – every Central bank in history has failed to maximize employment, stabilize prices, and maintain financial stability. And this time will be no different; as amidst the serial collapse of history’s largest, most destructive fiat Ponzi scheme, the former two deleterious trends are rapidly getting away from them; with the third setting up for an historic, thundering crash – as the worst fundamentals of modern times crash into the highest-ever valuations. This, whilst Precious Metals “suffer” from the polar opposite fundamentals – of the best ever fundamentals, and the lowest ever valuations. To that end, I can only ask, “what could possibly go wrong?”

Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, as Media Director in October 2011. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies.